UK Manufacturing Sector Grapples with Low Orders and Upward Price Pressures
British manufacturing continues to confront significant headwinds, with order books languishing well below average and persistent upward price pressures, according to the latest industrial trends survey from the Confederation of British Industry (CBI). The findings paint a mixed picture for the UK economy at the start of the year, highlighting ongoing challenges for firms and households alike.
Survey Highlights Weak Demand and Cost Concerns
The CBI survey, a closely monitored gauge of manufacturing health, revealed that the monthly order book balance stood at -28 in February. While this marked a slight improvement from -30 in January, it remains substantially below the long-term average of -14. Cameron Martin, a senior economist at the CBI, noted, "Many firms continue to report customers holding back amid low confidence and elevated cost pressures." The survey methodology involves asking manufacturing companies to assess whether conditions are better, worse, or the same across various metrics, then calculating a net position from the responses.
Factory Output Declines and Price Expectations Rise
Factory output experienced a decline over the three months leading to February, registering a balance of -14. Although this represents an improvement from -25 in January, manufacturers anticipate output will continue to fall at a similar pace in the coming quarter. Compounding these issues, the survey's measure of expected prices over the next three months reached +26, having peaked at +29 in January—the highest reading since February 2023, when the UK was grappling with an energy price shock following Russia's invasion of Ukraine.
Broader Economic Context and Government Response
The manufacturing sector, which constitutes approximately 9% of the UK economy, is under scrutiny as the Labour government prioritises removing barriers to its expansion, viewing it as crucial for long-term growth. In June last year, the government announced a new industrial strategy, including a £2 billion investment over four years aimed at reducing energy costs for thousands of manufacturing businesses. However, this scheme is not slated for implementation until 2027, prompting the CBI to advocate for its acceleration to provide immediate relief. The CBI emphasised, "Tackling punitive energy costs will strengthen competitiveness, ease cost of living pressures, and help boost demand across the economy."
Small Businesses Face Unprecedented Challenges
Amid these manufacturing struggles, the Federation for Small Businesses (FSB) has raised alarms about its members confronting "unparalleled cost pressures" that could push them into "deeply uncharted territory in which small business viability may collapse." Tina McKenzie, the FSB's policy chair, has written to Chancellor Rachel Reeves, urging measures to "stem the tide of the rising bills due in April." This underscores the broader economic strain, with households reporting dismal financial sentiments and companies reducing staff due to rising costs, despite some business surveys indicating a recent uptick in optimism post the autumn budget uncertainty.
Overall, the CBI survey underscores the ongoing fragility in British manufacturing, with low orders and persistent price pressures posing significant hurdles to recovery and growth in the sector.
